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date: 14 October 2019

Abstract and Keywords

This chapter discusses the experience of African countries with monetary unions, focusing on the CFA Zone where that experience has been the longest and the deepest history of integration. It briefly discusses how the intellectual legacy of colonialism led to distorted expectations and the neglect of the exchange rate—a crucial tool for improving the standards of living in open economies. It then provides the analytical framework for understanding why trade reforms did not yield positive results in the fixed exchange rate environment. The chapter also draws some lessons from that macroeconomics of masochism, which consists in pegging the exchange rate of small, poor economies to a strong currency. Finally, it reexamines the criteria for assessing the validity of monetary unions regardless of whether they peg their currency or not.

Keywords: African monetary unions, CFA Zone, macroeconomics of masochism, compatibility and trade liberalization, real exchange rate adjustment, deflation and devaluation

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